Archived Educational Articles 
| Is This Chinese Telco STILL Underestimated? |
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| Friday, 30 March 2007 | ||
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Most of you are probably familiar with the high-flying Chinese telco name China Mobile Telecom (NYSE: CHL) - there's certainly been enough buzz surrounding it. What you may not know, however, is that the best days for its stock may still be in front of it. And what are those results? Try last year's (2006) revenue growth of 21.5% and earnings growth of 23.4%. And, there aren't any games or trick behind those numbers....their subscriber base improved by 22.1%. Plus, analysts say more of the same kind of growth is in the cards for 2007. Anything You Can Do I Can Do Better Of course, the counter-argument against China Mobile is simply that a rising tide lifts all boats; any stock is going to do well if the market is red hot like we're seeing in China, right? Well, maybe, or maybe not. Do I think China is experiencing the kind of ridiculous secular growth the U.S. markets saw in the late 90's? It's not exactly apples to apples, but yes - there are some stark parallels. And, the numbers verify my suspicion. The thing is, China's 'rising tide' is NOT lifting all boats equally. One of China Mobile's biggest-though-rare competitors, China Unicom (NYSE: CHU), isn't quite keeping pace with China Mobile's performance. Unicom's revenue grew by 17.0% in 2004, by 12.5% in 2005, and only by 8% in 2006. In 2006, the subscriber base grew by 11%. Not bad, but how come it's not keeping pace with China Mobile? Could it be simply that China Mobile knows how to fire on all cylinders? Unicom's fallibility tells me this secular Chinese strength - and telecom's strength in particular - is not a scenario where you can just throw darts and expect to do as well with one stock as you would another......unlike the go-go 90's for the United States' markets. Or to put it another way, China Mobile's progress is credible, since it's not a given. And, it can likely be repeated. When China Mobile tells me they're looking for more 20%+ increases across the board, I believe it. Big Fish, Little Pond (and the pond is getting bigger) With all this being said, the most attractive numbers of all still haven't been put on the table. While the fundamentals supporting CHL's chart are anywhere from 'solid' to 'downright impressive', I find these last two numbers just stunning - in a good way. #1. Just for perspective, institutions typically hold about 2/3 of all publicly traded stocks, as they're collectively (roughly) twice as big as the aggregate retail investor portion of the market. And, as you might imagine, most of these big players try and hold higher-caliber, quality names. The questions to ask yourself are (1) 'Is CHL a high quality stock"', and (2) 'If I were running a fund, would I want to own CHL?' My answer to both questions is 'yes'. As well as China Mobile and its stock have been doing, only 1.5% of the ADR's (American Depository Receipts) are held by institutions like funds, pensions, insurance companies, etc. Granted, there are some limitations these funds must adhere to when it comes to how much of a particular issue can be owned by a single entity. However, with nearly 4 billion shares outstanding, owning 'too much' CHL isn't really a barrier to entry for the major portfolios. Institutional ownership of CHL is well under the glass ceiling. #2. It's probably not a surprise, but China is the world's biggest mobile phone market, yet also one of the most untapped. That's the key to the growth here, especially for China Mobile. As of the most recent count, there were over 460 million mobile phone customers in the country. Government officials think 60 more million new ones will be added in 2007. |
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| Last Updated ( Wednesday, 04 April 2007 ) | ||
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